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Earnings reports

Heads Roll at Marconi

The CEO and chairman of Marconi PLC have paid the price for springing a nasty surprise on shareholders in early July (see Marconi Stock Tanks). Lord Simpson, who masterminded Marconi’s strategy of focusing on telecom, has been replaced as CEO by one of his lieutenants, Mike Parton. Sir Roger Hurn, Marconi’s chairman, has gone, and Derek Bonham, a senior non-executive director of Marconi, has take over as interim chairman. Both Simpson and Hurn today resigned from Marconi’s board (see Marconi Gets New CEO, Chairman).

On the London Stock Exchange this morning, Marconi’s shareprice rose from 50 pence (US$0.73) to 58 pence ($0.84) and then sank back a little to 56 pence ($0.81) after the news was announced.

The management changes at Marconi were contained in a “trading statement” issued this morning. In it, Marconi says sales have picked up in the second quarter of this year -- up, that is, from the disastrous first quarter that caught the company, and then its shareholders, by surprise. Marconi now expects to make an operating loss of £227 million ($328 million) in the first half of 2001, rather than breakeven, its previous guidance.

Marconi says that the primary goal of its current strategy is to bring down its net debt, which peaked at £4.4 billion ($6.42 billion) in the last quarter. The company expects to reduce this to £2.7-3.2 billion ($3.94-4.67 billion) by the end of March next year (the end of its financial year).

The company says it’s “not in a position to give further sales and operating profit guidance for the full financial year." However, it notes that its annual operating costs will be reduced by 27 percent, to £1 billion ($1.4 billion), by next March. This means Marconi will need sales of £800 million ($1.16 billion) a quarter to break even, the company says.

The cost reductions will come partly from a further round of 2,000 layoffs, in addition to the 8,000 Marconi has already announced.

Other cost reductions are expected from Marconi’s decision to focus on what it now describes as its “core business.” This encompases three equipment categories:

  • Optical networks. This includes Marconi's SDH and DWDM gear. It also includes ultra-long-haul transmission equipment being developed by its Solstis venture (see Marconi Touts Long-Haul Box) and a planned optical switch.
  • High capacity packet switches. This is the range of switches that it inherited from Fore Systems, together with recent additions (see Marconi Unveils Big Switch/Router).
  • Broadband access platforms. Marconi already has a sizeable share of the fiber-to-the-home market, which could turn into a big money spinner.

    The company says its core business had sales of £4,665 million ($6.75 billion) and an operating profit of £592 million ($857 million) in the year ended March 31, 2001.

    Marconi's determination to stick to its core business raises a big question mark over Marconi’s optical components division, which was only formed last December (see Marconi Joins Optical Components Field). It's said to be an Aladdin's Cave of optical technologies invented by boffins at Marconi's Caswell labs. Commercializing these developments, however, seems to have been beyond Marconi. "It's like walking through treacle," one staff member recently told a Light Reading source.

    In a conference call with analysts today, CEO Parton said that Marconi had sunk a lot of cash into its optical components division and into another "non-core" venture, a service provider called Ipsaris. The "non-core" reference indicates that Marconi has turned off the funding tap on both outfits.

    Marconi has already struck a deal under which Ipsaris is being "merged" (acquired) by another telecom operator, Easynet Group PLC. Marconi is "looking at various ways" of developing its optical component business, Parton said on the conference call. This includes partnering with other companies or selling it off.

    Marconi is hoping to raise £500 million ($721 million) from the disposal of non-core assets by the end of its financial year next March.

    — Peter Heywood, Founding Editor, Light Reading
    http://www.lightreading.com
  • Page 1 / 4   >   >>
    Belzebutt 12/4/2012 | 7:52:44 PM
    re: Heads Roll at Marconi Lord Simpson... Sir Roger Hurn... I see the feudal system is alive and well in England.
    Peter Heywood 12/4/2012 | 7:52:42 PM
    re: Heads Roll at Marconi I know what you mean - although Lord Simpson actually sounded a lot more adventurous and entrepreneurial than the previous incumbent at Marconi, Lord Weinstock.

    After the debacle on July 4, the journalists on the "quality" daily newspapers in the UK went completely bonkers about how Lord Simpson had frittered away the huge cash mountain accumulated by Lord Weinstock, by focusing on telecom rather than spreading his eggs among multiple industries including defense.

    I found myself siding with Simpson.
    Lighteating 12/4/2012 | 7:52:41 PM
    re: Heads Roll at Marconi My memory of the history of GE, now Marconi (and Comrade Bennett may correct my errors) is that Weinstock basically built the firm and was (may still be) the major shareholder. Simpson came in and cleaned it up, selling off the defense business to BAE, the railway locomotive works, and other odds and sods, and re-positioned the firm for growth in telecom.

    Since Weinstock still pulls a lot of strings (he cannot have been happy to see his empire dissolved, or his nest egg reduced) he likely pushed for the sackings. Hopefully it is too late for him to push Marconi back into railway bogies although I suspect that is what he might wish to do. Good thing for the company that Simpson spent all the cash - now they have to make a go of it with their teleco focus. Get a load of Brits with their backs to the wall and the rest of the market better watch out.
    skeptic 12/4/2012 | 7:52:40 PM
    re: Heads Roll at Marconi Lord Simpson... Sir Roger Hurn... I see the feudal system is alive and well in England.
    ---------------

    At least its out in the open in England. Every
    country has its aristocrats. Its just that
    most of the time, they are not titled in public.

    Whatever his faults, Lord Simpson tried to
    grow the company. Which is unusual for
    a british concern.

    None of these moves is positive for Marconi.
    Peter Heywood 12/4/2012 | 7:52:38 PM
    re: Heads Roll at Marconi Marconi still has some fundamental strengths, don't you think?

    A lot of it comes under the "boring but what a big market" label:

    - frame contracts worth billions with incumbent carriers who will start spending again sooner or later
    - Fore Systems stuff, which plays to the fact that ATM is widely deployed.
    - Big share of the SDH market. OK, not Sonet but Sonet isn't everywhere.
    - Good position in fiber access networks.

    manoflalambda 12/4/2012 | 7:52:37 PM
    re: Heads Roll at Marconi - Optical networks. This includes Marconi's SDH and DWDM gear. It also includes ultra-long-haul transmission equipment being developed by its Solstis venture (see Marconi Touts Long-Haul Box ) and a planned optical switch.
    ...
    Intersting that they are an investor in Calient, why if they have their own optical switching technology and long haul optical products are they investing in a competitor? Perhaps at one time they thought that they might buy them? Probably not thinking that anymore! Hence the looking to partner comment.


    Grail:

    Was Marconi's OXC home-grown or to be built around a sub-system that someone (like OMM, ONIX) is not going to make anymore? Perhaps the Calient alliance was to give them a solution (for resale) if their own development didn't pan out.

    Salute,
    Manoflalambda
    Lighteating 12/4/2012 | 7:52:37 PM
    re: Heads Roll at Marconi You must remember that Marconi's transition to telecoms represented an attempt to emulate NT and LU.

    Given the recent announcements, they appear to be doing a bang up job of executing on this strategy.

    Cheers!!
    Holy Grail 12/4/2012 | 7:52:37 PM
    re: Heads Roll at Marconi Peter Heywood wrote:

    I know what you mean - although Lord Simpson actually sounded a lot more adventurous and entrepreneurial than the previous incumbent at Marconi, Lord Weinstock.

    After the debacle on July 4, the journalists on the "quality" daily newspapers in the UK went completely bonkers about how Lord Simpson had frittered away the huge cash mountain accumulated by Lord Weinstock, by focusing on telecom rather than spreading his eggs among multiple industries including defense.

    I found myself siding with Simpson.

    ------------------------------------

    The theory sounded good, get rid of all that stodgy defense stuff and focus on a high growth telecoms area, get the stock re-rated and list on NASDAQ to deliver shareholder value.

    The 1st problem was that they failed to understand business 101, diversification was done for a reason. It helps to manage risk!

    The 2nd major flaw in their strategy was related to the execution of the strategy. They bought FORE Systems for $4.5 BILLION in CASH instead of paying with stock or some mix.

    The 3rd mistake was to pay cash for all of the FORE Systems Employee stock options, vested and unvested. Guess what, the employees walked the next day.

    These are all pretty fundamental errors.

    The management have turned a -ú3 BILLION cash mountain into a -ú4.4 BILLION debt in a matter of months. If I was Weinstock I would be furious, to put it mildly.


    I'm also interested to see that their new strategy involves focussing in three areas.

    - Optical networks. This includes Marconi's SDH and DWDM gear. It also includes ultra-long-haul transmission equipment being developed by its Solstis venture (see Marconi Touts Long-Haul Box ) and a planned optical switch.
    ------------------------------------------
    Granted they have some SDH market share, but how much of the DWDM market 2-3%?

    Intersting that they are an investor in Calient, why if they have their own optical switching technology and long haul optical products are they investing in a competitor? Perhaps at one time they thought that they might buy them? Probably not thinking that anymore! Hence the looking to partner comment.

    ----------------------------------------
    High capacity packet switches. This is the range of switches that it inherited from Fore Systems, together with recent additions (see Marconi Unveils Big Switch/Router ).

    How much market share in the high capacity packet switching market did FORE have? Anser, not much relative to Ascend CBX500, GX550(Lucent), Nortel, Passport, Cisco BPX and Newbridge 37160/170(Alcatel). And in the IP Router market against Cisco and Juniper well that about 0% market share.
    It better be a bloody good product!
    ----------------------------------------

    Broadband access platforms. Marconi already has a sizeable share of the fiber-to-the-home market, which could turn into a big money spinner.

    Humm... Fiber-to-the-home, is that like ATM to the desktop? I must remember to order that from my SP tomorrow.

    ------------------------------------------

    IMHO. They are going to run out of money, when they start looking for more from their investors, they will get bought (If they are lucky).

    Just an opinion.

    Peter Heywood 12/4/2012 | 7:52:36 PM
    re: Heads Roll at Marconi Great points, Holy Grail. Watch me steal them next time I write about Marconi!

    My impression is that Marconi's planned optical switch is home grown.

    Didn't realize that it had invested in Calient. That's interesting.
    archer 12/4/2012 | 7:52:31 PM
    re: Heads Roll at Marconi I am alarmed at how low MONI is going.
    Any guesses at how far it still has to go?
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